USD drops this week across the board

With no surprises sprung by the Bank of England yesterday as the MPC kept interest rates and the Asset Purchasing Facility unchanged, Sterling traded in range bound markets against its most traded counterparts. Perhaps, most unexpected was the fall against the Euro. Only earlier this week we were safely in the 1.21’s and a push to 1.2150 seemed on the cards. No such luck for the Pound though as it now finds itself back in the mid/high 1.20’s.

The general outlook is very positive for the Pound however, and further gains in the mid to long term against the Euro are widely forecast. GBP has rallied 4.8% in the past 6 months and remains the best performer of the G10 developed-nations. The economy is showing signs of positive momentum in some of the key areas which has been identified by the IMF.

The euro held on to its gains against the dollar yesterday and even clearly broke 1.3800 as there are signs that central banks are buying EURUSD to diversify their currency reserves. In addition, Greece’s announcement of its first bond sale in four years also supported the common currency.

The only high impact data out of Europe came out of Germany at 7.00am this morning where YoY Harmonised Index Consumer Prices meet its consensus figure reading at 0.9%. HICP is a measure of prices used by Governing Council of EU to define and assess price stability in the euro area as a whole in quantitative terms.

Many specialists are forecasting Euro strength moving forward owing to the reluctance of the ECB to step in to combat deflationary pressures, a concern which was further highlighted by data from France, Netherlands and Greece released yesterday.

The greenback fell to three weekly lows against across all major counterparties as yesterday’s Fed minutes disappointed investors who were expecting a gradual tightening in monetary policy. The minutes yesterday showed that US officials were concerned that the Fed’s forecasts on interest rates changes might appear to investors as a more aggressive cycle of rate hikes than was actually expected.

However, we did witness positive data come out better than expected in unemployment claims reading at 314k when it was forecasted to come out at 300k.

Looking forward to today, we see the PPI m/m figure released from the US at 12.30pm. This data could prove largely influential due to the market obsession with inflation we are currently seeing. If the data print comes out above expectation, we can expect a GBPUSD move lower towards the initial 1.6719 support level.